India plans to bring Iran back into banking clearing union

Iran's President Hassan Rouhani (File Photo)NEW DELHI: India plans to resume settling trade with Iran under a regional clearing house system after a gap of five years, the government said on Wednesday, as New Delhi seeks to promote trade ties with Tehran following the lifting of international sanctions.

The Asian Clearing Union (ACU), including India, Bangladesh, Maldives, Myanmar, Pakistan, Bhutan, Nepal and Sri Lanka, facilitates payments among members, economising on the use of foreign exchange reserves and transfer costs, as well as promoting trade and banking relations among participants.

The Reserve Bank of India decided in December 2010 not to facilitate oil trades through the ACU system. That left India and Iran, the only oil producer in the union, scouting for a stable payment mechanism to settle trade.

But a permanent banking channel could not be established due to pressure from Western nations, leading to a drastic reduction in India's oil imports from Tehran.

The Indian central bank has sought the consent of the finance ministry to get Iran back into the fold of ACU, junior foreign affairs minister V.K. Singh told parliament.

He said the government is also considering a request from Iranian banks to open branches in India and reactivate their accounts.

Despite Western sanctions India continued with its engagement with Iran and was among a handful of countries that were sourcing oil from Tehran.

As ties deepen further, India has extended a $150 million credit line to Iran to help develop its Chabahar port.

The port in southeast Iran is central to New Delhi's efforts to circumvent arch-rival Pakistan and open up a route to Central Asia as well as Afghanistan where it has developed close security ties and economic interests.

"A contract between Indian Special Purpose Vehicle and Arya Bander of Iran for development of Chahbahar Port has been finalised," Singh said.

He also said in January India decided to extend the credit for the start of a contract to supply 250,000 tonnes of steel rails to Iran through State Trading Corp.

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The ongoing field development and EOR/IOR projects are expected to produce a cumulative of 54.6 million tonne (mt) of crude oil and 114 billion cubic meter (bcm) of natural gas in the next three to four years, the report said.